Spirit Airlines 2011 Annual Report Download - page 26

Risks Related to Our Business
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our business, results of
operations and financial conditions.
Our business is labor intensive, with labor costs representing approximately 19.6% , 22.0% and 23.0% of our total operating costs for
2011 , 2010 and 2009 , respectively. As of December 31, 2011 , approximately 52% of our workforce was represented by labor unions and
thereby covered by collective bargaining agreements. We cannot assure you that our labor costs going forward will remain competitive because
in the future our labor agreements may be amended or become amendable and new agreements could have terms with higher labor costs; one or
more of our competitors may significantly reduce their labor costs, thereby reducing or eliminating our comparative advantages as to one or
more of such competitors; or our labor costs may increase in connection with our growth. We may also become subject to additional collective
bargaining agreements in the future as non-unionized workers may unionize.
Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA. Under the RLA,
collective bargaining agreements generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain
the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining
processes overseen by the National Mediation Board, or the NMB. This process continues until either the parties have reached agreement on a
new collective bargaining agreement, or the parties have been released to “self-help” by the NMB. In most circumstances, the RLA prohibits
strikes; however, after release by the NMB, carriers and unions are free to engage in self-help measures such as lockouts and strikes.
Our flight operations were shut down due to a strike by our pilots beginning on June 12, 2010 and lasting until we and the union
representing our pilots reached a tentative agreement for a new contract. Under a Return to Work Agreement, we began to resume flights on
June 17, 2010 and resumed our full flight schedule on June 18, 2010. On August 1, 2010, we and the pilots’ union executed a five-
year collective
bargaining agreement. This shutdown had a material adverse effect on our results of operations for 2010. Please see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—June 2010 Pilot Strike.”
Our collective bargaining agreement with our flight attendants became amendable in August 2007, and we are currently engaged in
negotiations with the union representing our flight attendants. Our collective bargaining agreement with our dispatchers becomes amendable in
July 2012. The outcome of our collective bargaining negotiations cannot presently be determined and the terms and conditions of our future
collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater
ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can. The need for workforce reductions and wage and
benefit concessions in the current adverse economic environment may have an adverse effect on our labor relations and employee morale. In
addition, if we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their
collective bargaining agreements, we may be subject to work interruptions or stoppages. Any such action or other labor dispute with unionized
employees could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our
business strategies. Our business, results of operations and financial condition may be materially adversely affected based on the outcome of our
negotiations with the union representing our flight attendants.
We have a significant amount of aircraft-
related fixed obligations that could impair our liquidity and thereby harm our business, results
of operations and financial condition.
The airline business is capital intensive and, as a result, many airline companies are highly leveraged. All of our aircraft are leased, and in
2011 and 2010 we paid the lessors rent of $116.6 million and $103.4 million, respectively, and maintenance deposits net of reimbursements of $
38.3 million and $35.7 million, respectively. As of December 31, 2011, we had future operating lease obligations of approximately $1.2 billion.
In addition, we have significant obligations for aircraft and spare engines that that we have ordered from Airbus and International Aero Engines
AG, or IAE, (or any other engine manufacturer for future deliveries) for delivery over the next ten years. Our ability to pay the fixed costs
associated with our contractual obligations will depend on our operating performance and cash flow, which will in turn depend on, among other
things, the success of our current business strategy, whether fuel prices continue at current price levels and/or further increase or decrease,
further weakening or improving in the U.S. economy, as well as general economic and political conditions and other factors that are, to some
extent, beyond our control. The amount of our aircraft related fixed obligations could have a material adverse effect on our business, results of
operations and financial condition and could:
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• require a substantial portion of cash flow from operations for operating lease and maintenance deposit payments, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;